Welcome to my weekly Q&A feature. (Scroll down for the Q&A.)
If this is your first time here, welcome. I spend a fair amount of time speaking at events and conferences. At the end of my presentations, I leave space for audience members to ask questions—tough questions, brave questions, you name it. The level of candor and curiosity always inspires me, and I want to share that sentiment with you. Each week I pick one question that I believe others would find most instructive and publish my response to it here.
The purpose of this weekly tradition is transparency and inclusion.
Transparency: a behind-the-scenes look at my day-to-day.
Inclusion: bringing others along on the journey.
Be Brave™
Using Public Policy To Achieve Gender Equity
Question:
Are there any carrots or sticks we can use to encourage more equalitarian and equitable behavior?
What’s on your mind? Ask your question here for a chance to have it answered in an upcoming edition of this newsletter.
Answer:
Let’s start from the belief that all behavior makes sense. When you observe somebody acting in a way that doesn’t make sense, it’s because it doesn’t make sense to you. You’re missing all or some of the context. (Note: this does not mean all behavior is appropriate.)
“Follow the money” is a derivative of the belief that all behavior makes sense. If you want to investigate behavior—ethical or otherwise, you need to identify where and by whom money transfers occur. Money serves as a powerful stimulant in a capitalist society, although you could easily swap “money” with “incentive structures” to broaden the scope of the phrase.
So let’s do that. Let’s “follow the incentive structures” to see what carrot-and-stick policies would encourage more equitable behavior. These policies matter because without them, we won’t unlock gender equity’s $3.1 trillion upside in this lifetime.
Carrots And Sticks To Encourage More Equitable Behavior
1. Federal Pay Equity Legislation
The pay gap is not the only way to measure gender equity, but it is one of the most concrete ways to do so. That’s why we need a comprehensive pay equity law to help companies identify and close gender pay gaps for good. For such a law to work, it needs to shift the burden of proof of pay equity from the employee to the employer. It must also:
1. Require companies above a certain threshold of employees (I suggest 100+ employees) to earn an equal pay certification by proving they pay equitably for work of similar value.
2. Ensure pay equity across all intersectional cohorts.
3. Hold companies accountable to pay equity by imposing fines for noncompliance.
Mandating comprehensive pay equity is a tangible way to track progress toward workplace equity. Plus, it would immediately unlock $512 billion in economic potential.
2. Board Diversity Requirements
The Nasdaq requires it, the European Union requires it, and a handful of states including Washington and Illinois require it. “Show or tell” diversity rules that mandate board seats for women and underestimated talent represent another incentive structure to prompt equitable behavior.
For “show or tell diversity rules” to be effective, they need to be set and standardized at the federal level. Like pay equity legislation, we must hold companies accountable by imposing fines for noncompliance.
Tip: Quotas work best when accompanied by legitimate efforts to improve gender equity throughout the entire organization (not only in leadership positions) and at every step of the employee lifecycle. When done right, quotas aren’t tokenism, they’re business boosters. Companies with more women board directors enjoy greater return on sales and equity than companies with fewer women board directors.
3. EEO-1 Data
Requiring companies to report on data—and then make it public, is a time-tested accountability measure. The Equal Employment Opportunity Commission should require and publish company data on workforce demographics broken down by gender PLUS race/ethnicity PLUS age.
The demographic data should also be delineated by level, from entry to the c-suite. This data can help employees and investors call out diversity greenwashing and ensure companies stay committed to their diversity pledges.
Stakeholder vs. Shareholder: The Next Stage Of Capitalism
If you want to change the way the world works, you need to change the incentives that modulate human behavior. The three policies listed above are incentive pillars on which we will build stakeholder capitalism.
Current metrics used to evaluate organizational success come from traditional financial statements. To embrace stakeholder capitalism, businesses need a new set of KPIs.
The three policies outlined above accelerate the transition to stakeholder capitalism by applying financial pressure to report on these KPIs.
And the best part about these stakeholder capitalism KPIs? They’re not bureaucratic red tape. They’re business enhancers: every 10% increase in gender equity yields a 1-2% revenue upside.
Curious about something? Ask your question here for a chance to have it answered in an upcoming edition of this newsletter.
© 2022 Katica Roy™, Inc.